The Dhandho Investor: The Low-Risk Value Method to High Returns
By Mohnish Pabrai
John Wiley & Sons
Review by Ashok Jainani
Mohnish Pabrai, the author, at the beginning, declares to be a disciple of Warren Buffett and Charlie Munger and acknowledges that the book is a “synthesis of ideas” that he has encountered in readings, interactions and experiences while managing funds. With near two-decades track record to prove it, he has been successful at both, investing and writing lessons about it in this tome. A book that you will need to read it more than once and try to recollect time and again anecdotal stories and interesting financial analysis the author tells throughout. Dhandho, literally translated, means “endeavors that create wealth” to which author adds “while taking virtually no risk.
“A simple investing book for reading and re-reading; fantastically simple to start the basics of value investing.”
Author, in the first chapter “Patel Motel Dhandho” reveals “we have all been taught that earning high rates of return requires taking on greater risks. Dhandho flips this concept around. Dhandho is all about the minimization of risk while maximizing the reward.” Author takes the readers through a framework of investing principles which can enable an investor make virtually risk-free bets with outsized rewards.
Pabrai deals an entire chapter on “Few Bets, Big Bets, Infrequent Bets” to explain that most successful value investors run concentrated portfolio and argues that 80% of mutual fund managers underperform the market because they spread too thin two wide – on average they hold 77 stocks. One approach that calls for holding stocks for 2-3 years is to remove emotions as most value ideas take about 18 months to play out. This helps in making a thorough decision in the beginning itself because you know you won’t be able to sell until 2-3 years later. Because of its size and style, this book is fantastically simple to start the basics of value investing.